Carbon Price versus ‘Effective’ Carbon Price

24/07/2011

If you listen to Tony Abbott, it would seem only Julia Gillard’s government is putting a price on carbon. That is not true.

THE federal coalition’s environment spokesman Greg Hunt has revealed it would put an effective price on carbon of about $15 a tonne- only $10 cheaper than what is expected under the government’s proposed carbon tax.

He conceded the coalition’s plan was to allow for a varying carbon price of up to $15 a tonne. It’s estimated on that price taxes could rise to $720 a year for average households by 2020.

Unlike the government’s compensation plans, the coalition’s price on carbon would be passed on to consumers, the government said.

“We have set out the average cost of emissions, which we would allow for, and our program is $15 a tonne. The price for an individual sector may be high or low, but we will simply go to the market and purchase the lowest-cost emissions reduction,” said Mr Hunt.

That is, I believe, the one and only time the coalition carbon price has ever been mentioned in the press.

Prior to that date and post that date, the coalition effective price has vanished from the media and with it came a vanishing in the minds of the public. You will have to ask the various media groups why this was allowed to happen.

The above graph is essential in understanding the difference between the ALP and the Coalition plans. The coalition, along with the voices of the inane Andrew Bolt, Alan Jones, Steve Price and who have you, have taken great opportunity to show that even WITH a carbon price, the governments plan actually leads to a rise in emissions by 2020. You can see it in green above. What they elect not to tell you is what the rise would be WITHOUT a carbon price as seen in blue.

It is vital we focus on that non carbon price line because that is the emissions estimated to occur with no cap and trade system. And it is vital to understand the coalition ‘effective’ carbon price.

By 2050, under the coalition plan, Australia would have increased their emission output from 600 million tonnes to 1,000 million tonnes. By 2020, the coalition plan will put output at around 700 million tonnes.

So lets work out what the coalition ‘effective’ carbon price means in monetary figures. At the current 600 million tonnes and at a price of $15 a tonne, the coalition ‘effective’ carbon price ‘effectively’ taxes the public purse by 9 billion dollars in the first year.

Oh yes Australia. This is a tax. Well it is ‘effectively’ a tax. Because what the coalition plan to do is take the 9 billion directly out of consolidated revenue. To understand what this means we need to look at what consolidated revenue actually is.

Chapter IV. Finance And Trade.

81. All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution.

In other words, the coalition intend to reach into all that revenue from income taxes, GST, levies, revenue etc, and from that big pile of cash, pull out a 9 billion dollar plum. They will THEN divide what is left to pay for services. This means less money to each state for hospitals, roads, education, infrastructure, subsidies and what have you.

The idea that you can pull out 9 billion dollars from consolidated revenue without leading to job losses is laughable. The coalition have been selling this plan as a reduction in the number or public service staff by 20,000. This is the SAME guys who are worried about 6,000 jobs by 2020 in the high emissions industries. I say 6,000 jobs as these are NOT job losses.

You see the coal industry are being disingenuous. What they mean is a carbon price will stop them from expanding as fast as they would like by 2020. Instead of creating 26,000 new jobs, they may only have to make 20,000. At least that is their claim.

But their claim is false. The reason they intend to increase production in the mining industry is there is a forecasted increase in demand world wide. This is because of the rapid development in the third world and an increase in global population. The idea that they would reduce production is laughable.

The ALP Carbon Plan hits the emitters for the $23 a tonne. So at the current 600 million tonnes, big emitters are up for $13.8 billion.

NOTE: the governments plan has a far whack of exclusions so the $13.8 billion figure will be a lot less re those exclusions but for the sake of argument I wont bother with those exclusions for either the governments plans or the coalitions.

The government then intends to take that money it raised from the emitters and offer compensation for households and high risk emitters as well as kick start the development of alternative energy sources.

The coalition plan to take the money they pull out of consolidated revenue and give it to emitters and to grow trees and carbon soil sinks. The plan is for the emitters to take that money and to improve their businesses. That’s right. You and I will be paying for a business that makes billions of dollars of profit a quarter to improve their business productivity presumably leading to bigger and better profits.

Further, by increasing say a coal fired plant’s production, it also increases its worth. That means they can take the money given to them from the government, improve their business, and then sell off same business at much increased price then it’s value now. That is what I would call a sweet deal.

The government plan intends to become a cap and trade emissions system by 2015. That means emitters will have to trade or abate to allow them to increase their production. For example, if you have a mining operation that produces 1 million tonnes of emissions and they plan to increase production by 50%, it is therefore likely to also increase their emission production by 50%.

Under the government plan, a business would have to do something to get that increase. They would have to either pay for it by buying excess emission productions from other emitters, or they have to abate their increase. These abatements could be either in Australia or overseas with other countries that also trade or sell excess emission productions.

Under the coalition plan, all abatement for new and subsequent emissions will also be pulled out of consolidated revenue reducing money on those services we always complain we do not have enough of.

By 2020, under the government plan, emitters would be paying roughly depends on the estimated price of around $40 a tonne. This includes CPI by the way. Given emissions will be roughly 650 million tonnes by 2020, this will be a trading system of $26billion. Big money huh?

By 2020, under the coalition plan, emitters would be producing 700 million tonnes. If you factor in CPI on their current $15 planned ‘effective’ carbon price, this would take it to be around $30 a tonne. That means by 2020, the government would be removing annually $21 billion dollars from consolidated revenue.

And again this means less money to roads, hospitals, schools, etc. This means less Australian Federal Police. Less Australian Customs Officers. Less defence forces. Less staff to provide services from the department of trade and so on.

The real surprise is around 2050. By 2050, the governments carbon price is expected to be at around $130 a tonne. This sounds a lot, but 30 years ago, the average home in Australia cost $100k. Now it is around $400k. And I may even be conservative with this figure. However, the projected emissions under the government plan will be under the 600 million tonnes produced today. Lets say it is 600 for simplicity sakes as I am not good with a calculator. At $140 a tonne and at 600 million tonnes, the trade will be about $84 billion dollars. Again. wow huh?

But under the coalition plan, emissions will be at 1,000 million tonnes. By 2050, the planned ‘effective’ carbon price that started at $15 a tonne in 2011 would be at around 5-6 times greater then that. The coalition estimated effective carbon price in 2050 would be about $100 a tonne. At 1,000 million tonnes of emissions, that means the coalition are reaching in and pulling out 100 billion dollars A YEAR out of consolidated revenue. 16 billion dollars more then the governments plan.

So when the coalition talk about their plan, you really should consider what that means.

What will the effect on the economy be if you start pulling 9 billion a year out of consolidated revenue and keep taking money every year till by 2050 they are taking out 100 billion dollars… A YEAR!

Apparently this will not cost any jobs or reduce government services or have an effect on the economy.

I should also point out that with abatements, emissions under the government plan will be about an effective 100 million tonnes and not 600 million tonnes I used to work out the $84 billion cost for the government plan. At 100 million tonnes, the cost would be $140 * 100 million tonnes or 1/6th of the $84 million or $14 billion. Compare that with the coalition figuring with no abatements of $100 billion.

What a load of ‘effective’ bullshit.

…

A. Ghebranious 2011 (All Rights Reserved)

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You could also mention that because the direct action plan is coming from the general tax and cost pool, then there is no incentive for me to change my consumption behaviour: ie to change my purchasing decision from widget a that is made with 100% black electricity to the now relatively cheaper widget using all green power. This also goes for electricity to my house.

In fact under the direct action plan the only incentive for behavioural change is in reduction of personal tax burden, an area that traditionally belongs to high net worth individuals and companies. Accordingly I note that any increase in costs for the ATO to improve monitoring etc is not priced into the scheme (possibly because it could be considered secondary costs).

The other flaws with direct action have been discussed in detail by laudable economists.

“All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution”

This to me is a key point!

How much can one trust any government to spend tax money where they say it will be spent?

In my country, we have an Emissions Trading Scheme (as if the cost of energy and living generally is not high enough already). The extra money is supposed to be used for purchasing carbon offsets etc but check out this news story!